Fixed price means the builder sets the price up front for a known scope and carries the pricing risk. Cost plus means you pay the actual verified costs plus the builder's fee, with full transparency but no guaranteed final figure.
Neither is better on its own. The right one depends on how well your scope is defined and how much is still unknown about the site.
What is a fixed price contract?
A fixed price, or lump sum, contract is where the builder agrees a set amount for the whole job before work starts. The NSW Consumer Building Guide puts it plainly: unforeseen changes during construction may still affect the final cost.
The builder carries the risk of their own pricing being wrong. They know that, so they price it in. You're paying for certainty on the known scope, and that certainty has a cost.
It still moves in three places: provisional sums, PC items and variations.
Where does a fixed price stop being fixed?
Provisional sums are placeholder figures for work the builder can't price exactly at quote time. Excavation and rock before a geotech report. Service connections before the authority conditions are in. Underpinning before the neighbour's footing is exposed. If the real cost comes in over the allowance, you pay the difference, usually plus the builder's margin on it.
PC items (prime cost) are allowances for things you haven't chosen yet: tapware, tiles, appliances, light fittings. If your selections cost more than the allowance, the difference is added, usually with margin.
Variations are any change to the contract once signed. In NSW they must be in writing and signed by both parties.
None of this is a trick. You genuinely can't price rock before you know it's there. The problem is a competitive tender, where the cheapest-looking quote often wins with low allowances. The headline number wins the job and the overrun turns up months later.
How do I read a fixed price quote before I sign?
- Add up every provisional sum. Know how much of the "fixed" price isn't fixed at all.
- Ask for the basis of each allowance. An excavation allowance with no geotech behind it is a guess. The same number tied to the report and rates is a price.
- Check the PC items against your taste. If you shop at the top end, a builder-grade tapware allowance will blow out. Better to know now.
- Compare scope-to-scope, not price-to-price. Two quotes a few thousand apart can end up hundreds of thousands apart once the allowances are real. More on that in how to choose a builder in Sydney.
What is a cost plus contract?
Under cost plus you pay the builder's verified direct and indirect costs, plus their fee, at regular intervals. There's no guaranteed final cost. The Consumer Building Guide says it's often used where the nature of the project prevents the final cost from being worked out up front. Think of a renovation where nobody knows what's behind the walls.
You see every invoice. You're not paying for a builder's risk allowance, because you're carrying the risk yourself.
What does NSW law require for each?
The rules come from the Home Building Act 1989, section 7 and NSW Government contract guidance:
- If the contract price is known, it must be stated prominently on the first page.
- If the price is not known, or may be varied under the contract, the contract must carry a warning saying so, with an explanation of how the price can change. If the price is known, that warning sits next to it.
- For cost plus contracts, progress payments must be supported by receipts or other verifying documents.
- Good practice is for the builder to give a non-binding estimate before starting, and track costs against it with you.
If you're offered a cost plus contract with no estimate and no cost tracking, ask why.
How does Varloch run cost plus?
On our cost plus jobs we still lock our subcontractors in at a fixed price before they start. The contract stays cost plus, as the law allows, for all the other trades.
So you get fixed numbers for most of the build, and full transparency on the rest.
The short version
- Fixed price: a set figure for the known scope, with the builder's risk priced in.
- Provisional sums, PC items and variations still move a fixed price.
- Add up the provisional sums and ask the basis of each one.
- Cost plus: actual verified costs plus a fee, full transparency, no guaranteed final figure.
- NSW law requires a price warning where the price isn't known or can vary, and receipts behind cost plus claims.
- Ask for a non-binding estimate and regular tracking against it.
Not sure which contract suits your build? Send us what you've been offered and we'll give you a straight read.
